BP 2013 Annual Report Download - page 182

28. Capital disclosures and analysis of changes in net debt – continued
An analysis of changes in net debt is provided below.
$ million
2013 2012
Movement in net debt Finance debta
Cash and
cash
equivalents Net debt
Finance
debta
Cash and
cash
equivalents Net debt
At 1 January (47,100) 19,635 (27,465) (43,075) 14,177 (28,898)
Exchange adjustments (219) 40 (179) (75) 64 (11)
Net cash flow (836) 2,845 2,009 (3,244) 5,394 2,150
Movement in finance debt relating to investing activitiesb632 – 632 (602) – (602)
Other movements (192) – (192) (104) – (104)
At 31 December (47,715) 22,520 (25,195) (47,100) 19,635 (27,465)
aIncluding the fair value of associated derivative financial instruments.
bSee Note 27 for further information.
29. Provisions
$ million
Decommissioning Environmental
Spill
response
Litigation and
claims
Clean Water
Act penalties Other Total
At 1 January 2013 17,374 3,631 345 10,251 3,510 2,872 37,983
Exchange adjustments (37) (7) – 5 – 14 (25)
New or increased provisions 2,092 472 (66) 2,466 – 464 5,428
Derecognition of provisions for items that cannot
be reliably estimated – – – (379) – – (379)
Write-back of unused provisions (2) (52) – (38) – (210) (302)
Transfer between categories of provision – 47 (47) ––––
Unwinding of discount 110 11 – 10 – 16 147
Change in discount rate (1,602) (41) – (20) – (13) (1,676)
Utilization (500) (695) (143) (3,451) – (230) (5,019)
Reclassified to other payables – – – (3,933) – – (3,933)
Deletions (230) (1) – – – (33) (264)
At 31 December 2013 17,205 3,365 89 4,911 3,510 2,880 31,960
Of which – current 866 769 84 2,725 – 601 5,045
– non-current 16,339 2,596 5 2,186 3,510 2,279 26,915
Of which – Gulf of Mexico oil spill – 1,590 89 4,157 3,510 – 9,346
Further information on the financial impacts of the Gulf of Mexico oil spill is provided in Note 2.
The group makes full provision for the future cost of decommissioning oil and natural gas wells, facilities and related pipelines on a discounted basis
upon installation. The provision for the costs of decommissioning these wells, production facilities and pipelines at the end of their economic liveshas
been estimated using existing technology, at current prices or future assumptions, depending on the expected timing of the activity, and discounted
using a real discount rate of 1% (2012 0.5%). The amount provided in the year for new or increased decommissioning provisions was $2,092 million
(2012 $3,766 million). The weighted average period over which these costs are generally expected to be incurred is estimated to be approximately 20
years. While the provision is based on the best estimate of future costs and the economic lives of the facilities and pipelines, there is uncertainty
regarding both the amount and timing of these costs.
Provisions for environmental remediation are made when a clean-up is probable and the amount of the obligation can be estimated reliably. Generally,
this coincides with commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. The provision for environmental
liabilities has been estimated using existing technology, at current prices and discounted using a real discount rate of 1% (2012 0.5%). The weighted
average period over which these costs are generally expected to be incurred is estimated to be approximately five years. The extent and cost of future
remediation programmes are inherently difficult to estimate; they depend on the scale of any possible contamination, the timing and extent of
corrective actions, and also the group’s share of the liability.
The litigation category includes provisions for matters related to, for example, commercial disputes, product liability, and allegations of exposures of
third parties to toxic substances. Included within the other category at 31 December 2013 are provisions for deferred employee compensation of $602
million (2012 $618 million). These provisions are discounted using either a nominal discount rate of 3.25% (2012 2.5%) or a real discount rate of 1%
(2012 0.5%), as appropriate.
30. Pensions and other post-retirement benefits
Most group companies have pension plans, the forms and benefits of which vary with conditions and practices in the countries concerned. Pension
benefits may be provided through defined contribution plans (money purchase schemes) or defined benefit plans (final salary and other types of
schemes with committed pension payments). For defined contribution plans, retirement benefits are determined by the value of funds arising from
contributions paid in respect of each employee. For defined benefit plans, retirement benefits are based on such factors as the employees’
pensionable salary and length of service. Defined benefit plans may be funded or unfunded. The assets of funded plans are generally held in separately
administered trusts.
In particular, the primary pension arrangement in the UK is a funded final salary pension plan under which retired employees draw the majority of their
benefit as an annuity. This pension plan is governed by a trustee board composed of four member-nominated and four company-nominated
representatives, an independent chairman, an independent director and a chief executive officer appointed by the chairman. The trustee board is
required by law to act in the best interests of the plan participants and is responsible for setting certain policies, such as investment policies of theplan.
178 BP Annual Report and Form 20-F 2013